Aer Lingus 2014 Annual Report Download - page 76

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period from October 2012 to December 2014 was incurred (totalling €9.3 million) and these costs have been recognised within staff
costs in the 2014 income statement.
The Audit Committee confirmed that they were satisfied with management’s treatment of the above items.
Exceptional items – presentation and disclosure
Aer Lingus’ reporting policy is to highlight within the income statement as ‘exceptional items’ those items of income and expense which are
material non-recurring items that derive from events or transactions that fall within the ordinary activities of the Group and which
individually or, if of a similar type, in aggregate, are separately disclosed by virtue of their size or incidence. Such items typically include
business repositioning costs, takeover defence costs, profit or loss on disposal of significant items of property, plant and equipment,
litigation costs and settlements, profit or loss on disposal of investments and impairment of assets, or once-off costs or credits where separate
identification is important to gain an understanding of the financial statements.
Judgement is used by the Group in assessing the particular items which should be disclosed in the income statement and related notes as
exceptional items, the value of which was €180.3 million for the year ended 31 December 2014. During 2014, the Audit Committee
considered management’s position that certain items warranted this presentation in order to help users of the financial statements in their
understanding of the results for the period. In particular, at the Audit Committee on 11 December 2014, the Committee considered
management’s classification of the once-off pension contribution of €190.7 million (arising as a result of the IASS solution) and the post
retirement income streaming past service credit of €21.7 million as exceptional items for the purposes of IAS 1 in respect of the financial
year ended 31 December 2014. See Note 10.
After considering the quantum and nature of the items in question, and consistency with Aer Lingus’ reporting policy and the principles used
in prior years to classify items as exceptional, at the Audit Committee meeting on the 11 December 2014, the Committee was satisfied with
the treatment of these items as exceptional items in the consolidated financial statements.
Treasury – presentation, valuation and disclosure
The Group’s activities expose it to a variety of financial risks: market risk (including exchange rate, commodity price and interest rate risk),
credit risk and liquidity risk. The Group’s risk management programme focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain
risk exposures.
The financial instruments used to hedge the commodity price risk associated with the Group’s forecasted fuel purchases as well as certain
foreign exchange and interest rate exposures are classified as cash flow hedging reserves. The effective portion of changes in the fair value
of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income until the transaction happens.
During 2014, there has been a loss in the cash flow hedging reserve shown in the Statement of other comprehensive income of €68.8 million
due to the decreases in the underlying price of fuel and the levels of fuel hedging. Therefore, at 31 December 2014, the balance of cash flow
hedging reserve was a loss of approximately €64.7 million (net of deferred tax) compared to a profit of €4.1 million at 31 December 2013.
The Committee members considered the above at the Audit Committee meeting on 19 February 2015 and are satisfied with the treatment of
the hedging loss during the year ended 31 December 2014.
Taxation – valuation of deferred tax assets
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates and laws that have
been enacted or substantively enacted by the reporting date and which are expected to apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
At 31 December 2014, the Group had a deferred tax asset of €22.9 million (see Note 31) as compared to a deferred tax liability of €3.9
million at 31 December 2013. The primary driver for this year on year movement is the recognition of a deferred tax asset of €23.8 million
which arose as a result of the recognition of the €190.7 million provision relating to the once-off pension contribution in 2014.
The Audit Committee considered the underlying forecasts of future taxable profits updated for the 2015 budget. In line with the accounting
standard IAS 12 Income Taxes, the Group can recognise the deferred tax asset as management have projected that taxable profit will be
available in the future against which the temporary difference can be utilised and therefore that this asset is recoverable. Based on this
assessment, at the Audit Committee meeting on 11 December 2014, the Committee members agreed with management’s position that it is
appropriate to recognise a deferred tax asset in this respect.
In addition, during the year, the Committee received an update on tax matters of the Group generally to satisfy ourselves of our overall
compliance in all jurisdictions.
Aircraft maintenance provisions – presentation, completeness and valuation
Aer Lingus has a significant amount of maintenance costs on major airframe and engine maintenance checks. These costs on owned and
finance leased aircraft are capitalised and depreciated over the shorter of the period to the next check or the remaining life of the aircraft. For
aircraft held under operating leases, a provision is made on a monthly basis (See Note 28). At 31 December 2014, the amount of the
provision was €63.3 million (2013: €42.6 million). Management estimated the amount to be provided for using a calculation which is
prepared by operations personnel. This calculation has a number of variables but primarily focuses on the number of leased aircraft, the
timing and nature of the next overhaul activity required, the planned lease return dates and conditions and the likely utilisation of the aircraft.
This provision will be utilised as the major airframe and engine overhauls take place.
The Audit Committee examined the complexities of this estimation in the Audit Committee meeting on 19 February 2015 and after due
challenge became satisfied that the provision is management’s best estimate.